The pros and cons of SME investment relate not only to macroeconomic signifiers, but also whether each individual Small and Moderate Enterprise (SME) carries the continuing potential for growth.

The shortage of affordable finance options for small and medium-sized enterprises (SMEs) in the UK has received widespread attention in the last twelve months. The data trends are especially disturbing given the importance of small business sustainability and growth to the nation’s economy.

Cloud Lending Solutions notes that what has received less attention perhaps is a solution that is readily available to narrow the funding gap – asset-based financing models. The UK finance industry has the capacity to move away from credit scoring models toward asset-based financing models to expand funding for smaller businesses.

From an asset finance perspective SME investment is often precipitated on not having capital tied up in physical assets, while also being able to rely on continuing lines of credit. Leasing equipment rather than buying allows for both of these prerequisites to be fulfilled.

The Federation of Small Businesses (FSB) in May 2018 reported that small business credit approvals had fallen to a 30-month low. Only 60% of small firms that applied for credit were successful and just 25% of firms surveyed considered credit affordable, down from 30% during the same time frame last year.

According to Paul Cunningham, head of Quantum Funding: “Despite the uncertainty that rattles markets, the asset finance industry has remained resilient to date. In 2018, overall volumes increased and business written via broker channels was up 11% for the year, while the overall figures show 3% annual growth across the board. It is these figures that inform our outlook – one of cautious optimism.”

When assessing the pros and cons of SME investment from an asset finance angle it is clear that may businesses across the country are grasping at the advantages of its financial arrangements. If there are any cons it is likely from the lessor’s side, with the attractiveness of the market bringing increased competition.

One area which is good news for the small and medium-sized companies in this country is the increase in the Annual Investment Allowance for the next two years, effective since 1 January 2019. The increase from £200,000 to £1m will incentivise SMEs to invest in their business, and the asset finance market is well placed to help support these requirements.